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Tata-Mistry Feud: NCLT Says Chairman Doesn’t Enjoy A Free Hand

The National Company Law Tribunal, which upheld the removal of Cyrus Mistry as Tata Sons chairman, said that an executive chairman does not enjoy a free hand and cannot assume that majority shareholders and the board would be at his “beck and call”.

In a 368-page order, which was made public today, the bench said that Mistry’s wrong assumption that he had a free hand to run the affairs of the Tata Group perhaps caused all the problems. It added that the Tata Sons board was “competent” to remove him.

“Mistry has created a situation that being the executive chairman he is not accountable either to the majority shareholders or to the Tata Trusts' nominee directors,” the order read. “Any executive chairman of all big companies will act as a face of the company, but that does not mean that he is whole and sole and the majority shareholders will remain at his beck and call”

After a four-month long hearing, a special bench of the NCLT, Mumbai had on July 9 dismissed all the petitions filed by Mistry and his family-run firms alleging oppression of minority shareholders and mismanagement by the board. He had also challenged his removal as chairman of Tata Sons.

The Mistry family is the single largest non-promoter shareholders of the Tata Group with over 18.3 percent stake, that it has held over the past five decades. But the bench said the petitioners as a minority are “without any special rights in the articles of association”.

"The very idea that Mistry assumed in his mind that he was given a free hand is incongruous to corporate governance and corporate democracy." - NCLT Order

On Mistry’s ouster as a director from the board, the tribunal said it was because the board and the majority shareholders had “lost confidence in him”. That was particularly after Mistry gave crucial information related to Tata firms to the income-tax department and selectively leaked information to the press. All this was done after Mistry was dismissed as chairman, the bench noted.

Over a dozen Tata Trusts own more than 66 percent of the over $105-billion Tata Group.

"As long as the board is not removed and as long as they work within the powers endowed upon them to manage the affairs of the company, there can’t be any sovereign concept in corporate structure, it is a collective responsibility of the board and their actions are accountable to shareholders of the company" - NCLT Order

The judgement noted that “even though the executive chairman was appointed by the board, one point to be remembered is that it is not a position elected by the shareholders.”